Friday, June 11, 2010


Ok, let me plainly state this.  The US government is not to blame for the BP explosion or spill.  The point of my last post was that the US government has been championed by liberals and Utopians as the character of almost mythic proportions.  The idea is that the government can ride in on its brilliant white steed and rescue us from all that impacts us or is not fair in life. The point I'm making is that there really is no magic government that does everything perfect and mops up messes created by nature and greedy capitalists. BP was and is terrible, but holding our collective breath for government's perfect execution of a plan will only end up in us turning blue.

A comment was made on the blog that the FED wasn't really to blame for much of the trouble, just those darn borrowers.  In other words, the Fed just followed what the markets were telling them and set rates accordingly.   I totally disagree. While there may be some truth to the statement that the FED follows what prevailing market conditions expect in terms of rate setting policy, we all know from just very basic economic theory that the maximum impact from central bank policy can be derived by surprise movements to "shock" the market. The FED is supposed to be better than Joe 6 Pack and even better than Wall Street and soften recessions by providing low rates and liquidity and curtailing expansion by raising rates and pulling back cash from the market. The "super human" Fed tells us that they can manage markets until you put them on the spot and then Bernanke and Greenspan squirm and state that they actually couldn't see any trouble coming.

And again, that goes to my original point. If the Fed cannot see bubbles forming and doesn't take it's role as the BAD COP in good times seriously when things are getting red hot, what good are they? They are to be the adults in the room when all the greedy kids are on Main Street and Wall Street.  The kids are not mature enough to manage themselves and that is why we are told that we need the adults (Fed).

The the entire decade, the Fed kept rates extraordinarily low too long and even beyond that, the FED had regulatory power to put the breaks on lending practices and cool down the overheating housing market. The Greenspan strategy is clear, it saw the asset bubble building and either ignored it, kept fanning the flames, or was too stupid to realize it. Their policies (whether following the market or not) were the cause of subprime. Yes, borrowers too were to blame, but the drug dealer has a part in every drug addict's addiction.  I saw the House of Cards documentary on CNBC the other day - where a subprime foreclosure victim stated it perfectly. She is to blame because she was stupid, they are to blame because they were just greedy crooks. I think that statement accurately describes the FED as well.